It was in late June of 2014 that oil prices began their steep decline, but 10 months later there’s still no indication of when and how the supply of oil, and the demand for it, will balance out to arrive at a fair market price, the International Energy Agency (IEA) reports.
In fact, it says, “the outlook is only getting murkier.”
On the supply side of the equation, there’s evidence that low prices are reducing crude output by producers of shale oil, particularly in the United States, because retrieving that oil often requires hydraulic fracturing, or fracking, which is more expensive than conventional methods.
Yet the IEA, the Paris-based organization that advises its 29 member states on energy policy, said April 15 in its monthly Oil Market Report that US output is forecast to grow this year.
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Meanwhile, there is no evidence that OPEC will lower its own output, which, under Saudi leadership, it decided to keep at a level of 30 million barrels a day in an effort to regain market share. In fact, the report said, the cartel increased production by nearly 900,000 barrels per day in March over February. Saudi Arabia alone increased production last month to even more than its usual 10 million barrels per day, it said.
Then there’s Iran, whose production and export of its vast oil holdings has been sharply limited by sanctions imposed by the European Union and the United States over its nuclear program, which Tehran says is for peaceful purposes but others suspect is aimed at producing weapons. Iran has reached a tentative deal to restrict this program in exchange for a gradual lifting of sanctions.
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If this deal becomes final by the June 30 deadline, the 10-month-old oil glut could grow even larger if Iran can work quickly to improve production and exports, the IEA report said. Only this week Iran’s oil minister, Bijan Zanganeh, urged OPEC to cut production by 5 percent so Iran’s return to the market, if it happens, won’t worsen the glut.
As for demand, there’s no question that lower oil prices has caused it to rise in many parts of the world, including China and Europe, which have been experiencing slower economic growth. But there’s no concrete evidence that this indicates a trend or merely a “temporary aberration,” the IEA report said.
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For example, China reports that its growth for the first quarter of this year was 7 percent, strong by international standards, but it was the country’s slowest pace of growth since the same period six years earlier.
So here’s how the IEA presents worldwide supply-demand as it stands today: In March, global supply was at 95.2 million barrels per day, an increase of 3.5 million barrels per day over March 2014. Growth in global demand increased by 1.3 million barrels per day in the first quarter of this year over the same period a year earlier, although the IEA said there was no evidence that such demand could be sustained.
For all of 2015, the agency said it expects demand to rise by 90,000 barrels per day over 2014 to 93.6 million barrels per day. But whether that presages a continued glut or is just another “temporary aberration” is anyone’s guess.
By Andy Tully Of Oilprice.com
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Andy Tully is a veteran news reporter who is now the news editor for Oilprice.com